‘Chinese fund’ shifts focus to Japan

SPREADING The RISK:Although the ownership of OD05 Omnibus is still unknown, it is believed to be linked to China and to have invested US$45 billion in 174 Japanese firms

AFP, TOKYO

Europe’s financial turmoil has seen the Chinese government quietly pour tens of billions of US dollars into Japan’s stock market, analysts say, despite the two countries’ lingering historical animosity.

For years, the two Asian powerhouses have eyed each other suspiciously with frequent diplomatic spats flaring over territorial claims and longstanding disputes, largely stemming from Japan’s wartime record.

However, with economic ties improving and Europe in a debt crisis, an ever more practical Beijing is buying up shares of Japanese firms as it looks for safer places to park its mountainous foreign-exchange reserves, the world’s largest.

A fund known as OD05 Omnibus, widely viewed as linked to Beijing, was a major shareholder in 174 Japanese firms at the end of March, including names such as Toyota and Nikon, said a survey by the Nikkei Shimbun business daily.

The paper put the value of the fund’s Japan investments at a record ￥3.58 trillion (US$45 billion).

The survey showed the fund’s shareholdings have more than tripled since 2008, when the collapse of Lehman Brothers triggered an unprecedented shock to the global financial system.

The ownership of Omnibus, reportedly based in Australia, has never been publicly acknowledged.

However, dealers view it as being backed by China’s sovereign wealth fund, China Investment Corp (CIC, 中國投資公司), and charged with helping manage some of Beijing’s more than US$3 trillion foreign currency war chest.

“When Europe is in such financial turmoil, Beijing needs to diversify its investment destinations,” said Tsuyoshi Ueno, senior economist at NLI Research Institute in Tokyo.

“China has so much in foreign currency reserves and they need to invest it in blue-chip companies, Ueno added.”

CIC’s chairman has reportedly said the fund was scaling back its European equity and bond holdings, telling the Wall Street Journal this month that “there is a risk that the eurozone may fall apart and that risk is rising.”

Japan’s economy has struggled for years, but it is increasingly seen as a port in the storm for investors, while Europe struggles to rein in its finances and questions swirl about a solid recovery in the US.

Recent Bank of Japan data showed that China has become a major holder of Japanese government and corporate debt, outpacing the US and Britain.

In March, China, which is Japan’s largest trading partner, approved Tokyo buying its government bonds, a move that analysts said appeared to be the first time a major economy had bought debt directly from Beijing.

The Asian powers have also started direct trading between the Chinese yuan and the yen to ease cross-border business, including corporate acquisitions, which have often been completed using US dollars.

The agreement — the yen is the only major currency other than the greenback to trade directly against the yuan — comes as Beijing continues its long-term bid to turn the yuan into a global unit rivaling the US dollar.

A Chinese fund manager said Omnibus quietly invests in a cross section of corporate Japan, but deliberately keeps its stake well below majority ownership.